Modularity and the Organization of International Production
AbstractIn many globalized industries, vertical outsourcing seems to co-evolve with horizontal integration in the component sector. In order to account for this phenomenon, I incorporate modularity into an industry-equilibrium model with monopolistic competition and perfect contracts that allows the organization of the firm to be endogenous in both the vertical and horizontal dimensions of production. The model illustrates that the co-evolution is most likely to occur in industries with modular product architectures and high increasing returns to scale in the intermediate good sector. This paper also provides a theoretical legitimation of Stigler's contentious conjecture that firm production structures become vertically disintegrated as an industry expands.
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Bibliographic InfoPaper provided by East-West Center, Economics Study Area in its series Economics Study Area Working Papers with number 65.
Length: 29 pages
Date of creation: Nov 2003
Date of revision:
Find related papers by JEL classification:
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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